The 7-Step Strategy: Responding to an Unsolicited
offer to acquire your company comes in out of the blue, you should be
prepared to respond intelligently. In today’s technology markets,
receiving an unsolicited offer is fairly common.
When an offer arrives, it may not be an official letter or for
a specific price. The CEO of the buyer may simply place a phone call to
the CEO of the target company asking if they would be open to
discussing a sale.
flattered, of course, when a buyer is interested in your company. But
how should you respond? Should you scramble to get competitive offers?
When and how should you contact other buyers? What is your plan? These
are questions that a company should be prepared to address.
are unsure about the best response. They wonder if trying to get
additional offers is difficult, risky, will take too long or will
displease the buyer. The smart management team will assess the
situation and respond appropriately.
Get Experienced Advice
First of all,
get the guidance of an experienced advisor. This might a
board member, an investment banker, another CEO or a trusted
consultant. In any case, it should be someone who has had significant
experience with the sale of companies.
entrepreneurs are independent types and prefer doing things themselves.
However, the sale of a company is different. It may seem quite
straightforward at the outset, but the nuances and subtleties involved
with the sale of a company are numerous. A CEO may not even be aware
when he or she is slipping up or making a mistake. In addition, the
consequences involve real money and rookie mistakes can be expensive.
An experienced adviser will provide you with objective advice, a
perspective on the market and recommend the best course of action.
Engage with the Buyer
Begin a dialog
with the buyer and see where the conversation goes. Be aware that going
down this road can be a very time-consuming process.
Think about the buyer’s business. How good is the fit between your
companies? Is the buyer already in your sector or about to enter it?
Does the buyer have the ability to pay an attractive price?
Sharing appropriate information with the buyer begins by putting a
nondisclosure agreement (NDA) in place. The buyer will want financial
statements, projections, schedules, partnership agreements and other
information about your company.
about how much and how soon you share sensitive information,
particularly customer information. It is not unusual for buyers to ask
for too much or inappropriate information early in the process. This is
particularly true if the buyer is not an experienced acquirer. For
example, it is not appropriate for a buyer to ask for your customer
list (or revenues by customer) early on. This should be a red
Assess your Situation
management team and review your growth plans. Are you making good
progress? Do you need additional capital for growth? Are your products
and technology fully developed? Review your marketing and sales
efforts. Are you effectively attacking the market? Are you winning the
competitive battles? Perhaps being part of a larger company could be a
good way to enhance your marketing and sales capabilities.
Assess the market situation. What is the stage of the market—is it
early stage or a mature market? Are new companies entering the market?
Is the market growing?
If your firm is growing nicely and building market share, it may be
wise to sell later on down the road. On the other hand, if your company
is struggling to gain market traction or profitability, selling now
might be a smart strategic move.
Have an Idea of Your Company’s Worth
What is the value of your company? An
investment banker can help you understand your value. Remember that there are two types of value—financial value and
strategic value. The financial value is based on your company’s operating profits. For technology companies, the strategic value is
almost always greater than the financial value. It is important to
understand the strategic value of your company to potential acquirers.
Generate Additional Offers
My recommendation is almost always to generate additional offers. How
else will you know if you’re getting the best price? The value of
competitive bids is significant. Are there other buyers that might be a
better fit? The buyer may have competitors that might be good
acquirers. Examine the sectors adjacent to your market. Do these
sectors contain buyers that could acquire your company in order to
enter the market?
Manage the Timing
timing is critical when generating additional offers. There are three
basic options for responding to an unsolicited offer: rapid, medium
and comprehensive. The rapid response involves reaching out to five or
10 companies as soon as possible to get competitive bids. Timing is
important because if you have a quality buyer in hand, you do not want
to dally too long.
The medium response involves contacting 10 to 20 companies, going
beyond the obvious candidates. This response takes more time but it
includes a wider universe of buyers.The comprehensive response involves
a fairly extensive search for additional buyers, contacting between 20
and 40 companies. The time line for this approach is longer but it
leaves no doubt that all of the best buyers have been contacted.
The best preparation for an unsolicited offer is to consider your exit
strategy well in advance. There are measures you can take to maximize
the price and avoid leaving dollars on the table. Make sure the goals
of management and shareholders are aligned. Keep your financial
statements up-to-date. Document your intellectual property properly.
Manage and track the profitability of your products as well as the
profitability of each customer. View your markets strategically. This
means understanding the movement in the markets and assessing the
likely outcome of that movement. Don’t get caught off guard by an
This article includes excerpts from Tom Metz’s book,
Perfect Your Exit Strategy—7 Steps to Maximum Value.
(Bettencourt Publishing, Ltd. 2016)